Foreclosures on the rise in suburbs of Baltimore

The Baltimore Sun

An Edgewater house with a new siding-and-stone facade. A five-bedroom in Hanover, two-car garage attached. A West Friendship mansion on nearly an acre of gently sloping land. A million-dollar Colonial in a Columbia development so new, the sales office is still open.

Suburban. Symbols of affluence. And - as recently as the past few weeks - all in foreclosure.

The new wave of mortgage defaults hitting the region, part of a nationwide spike, is not primarily a city problem. Foreclosure filings rose four times faster last year in Baltimore's suburbs than in Baltimore - up 15 percent versus less than 4 percent in the city, court records show. To the south in Montgomery, one of the nation's wealthiest counties, filings were up more than 30 percent.

Suburban Baltimore foreclosure cases are increasing even more quickly this year, and local housing advocates fear a worsening as more "exotic" mortgages reset to higher payments. Already, real estate agents and auctioneers say, some homeowners are desperately trying to sell before they are overwhelmed.

Statewide, nearly 45,000 mortgages had late payments at the end of last year, according to the Mortgage Bankers Association. The share of delinquent loans rose more than 10 percent from 2005, the biggest year-over-year jump since the last recession.

Christy L. Grambo, 31, isn't surprised. She has friends in trouble. She saw a home in the area sell and within a few months get taken back by the bank for nonpayment. And that pretty Edgewater house with the new facade? Hers.

"It's sad. It really, really is," said Grambo, who bought the Anne Arundel property with her husband, Erik, for $382,500 a year and a half ago. They have a son, 3, and a child on the way.

The Grambos have twice saved their four-bedroom house from a foreclosure auction, most recently last month - homeowners in the foreclosure process can still work out a deal with their lenders. Erik D. Grambo, who has dreams of buying land and building a home someday, is hopeful that the situation is improving. But with $3,600-a-month payments, things are tight now.

Do the math

The couple are typical of the changing face of foreclosure, which is no longer just about job loss, illness or divorce. Increasingly, it's about the loans.

As the housing boom pushed prices skyward here and across the country, buyers - even those with some home equity - stretched to make the numbers work. And they could do so like never before, with lenders offering a head-spinning array of options. No money down. Adjustable rates. Interest-only payments. Payments that wouldn't cover even the interest. The catch: Higher costs down the road - much higher, in some cases.

When the market slowed and then took a turn for the worse last summer, some homeowners found themselves in trouble.

The Grambos think they probably would have been all right if their last home - put on the market just after the housing boom - hadn't taken so long to sell; they had four months of paying mortgages on both places. Because they financed the full cost of the Edgewater house and got an adjustable rate, they have little equity cushion and the likelihood of increased payments in the future. They tried to sell and couldn't, caught by the market downturn. They were close to refinancing but decided it wouldn't help.

Their fledging construction business is doing well, with only a few slow months. As things began to unravel, though, there was no room for any downtime.

"We had a decent income; we had things put away," said Christy Grambo. "And it just all crashed."

Overextending

Sherrie Brandquist, president of Fair Housing Rescue in Baltimore County, is hearing this a lot. She negotiates with lenders on behalf of homeowners in trouble who want to sell but can't get offers to cover all that they owe.

"It's not just that the market turned," said Brandquist, who in a year on the job has worked on cases involving homes ranging in price from $130,000 to $1.8 million. "I'm seeing that we have come out of five years of reckless lending."

Suburbia wasn't immune to foreclosures before. In the Baltimore area, the number of filings was higher at the start of the housing boom several years ago, improving as escalating home prices gave homeowners more options - refinance or sell for a quick profit.

But the sharp increase in foreclosures since then - here and in other affluent areas - seems like a new problem, said Rick Sharga of RealtyTrac Inc., a California company that tracks foreclosures. He thinks middle- and upper-middle-income homeowners have overextended themselves, betting on rising income and home equity - and losing those bets.

Consider, for instance, a western Howard County home whose lender filed for foreclosure last month: Built last year, it's nearly three times the size of an average new house, with a double-door entrance, a circular driveway and a four-car garage. Balance due on the loan: about $1.5 million.

Despite the opulence of some homes in foreclosure, their owners typically have something in common with people struggling to stay above the poverty line, advocates say: They're so financially stretched that a single unexpected expense can be disastrous.

"Either they've fallen behind in payments or it's just gotten to the point that the debt is strangulating them," said Mark F. Scurti, a Baltimore bankruptcy lawyer who has seen the number of people looking for Chapter 13 protection because of mortgage problems increase "dramatically" in the past few months.

"People are getting these large mortgages with variable rates that are just outrageous," Scurti added. "What they got in at, they could afford. Now they're paying almost double."

Adjustable-rate mortgages have interest rates that change frequently after a set period, such as three years. They grew rapidly in popularity during the housing boom, and many are scheduled for their first reset this year. First American CoreLogic, a provider of mortgage risk management services, expects to see 1.1 million foreclosures nationwide as a result of resets to adjustable-rate loans that consumers obtained from 2004 through 2006.

Trouble starts early

But some homeowners are in trouble before their first reset. One foreclosure filing in affluent Howard County last month, for an almost $1 million home in the newly built community of Metzlers Garden in Columbia, affects an owner whose interest rate isn't scheduled to change until 2011. Because the loan requires payments only on the interest for the first 10 years, not one dollar of the principal had been paid off at the time of the court filing.

Three days later, another lender filed for foreclosure on a $480,000 split-level in Ellicott City with an adjustable-rate, interest-only mortgage that also hasn't reset. The home changed hands only last summer.

But the interest rate was high from the get-go, at 9.25 percent.

Phillip R. Robinson, executive director of Civil Justice Inc., a Baltimore legal-help group, sees borrowers with good credit who have been "duped" into such higher-cost subprime loans meant for credit risks. He thinks it's contributing to rising defaults.

It certainly did for Elias DePaula. He bought a Rockville condo for $275,000 in January 2006, financing the entire amount; by the fall, he had lost it.

DePaula, who was making $40,000 a year as a salesman when he decided to buy in 2005, said he told his mortgage broker that he didn't want to spend more than $1,700 a month. But the result was $2,700 a month, including condo fees. His interest rates - nearly 8 percent on his first mortgage and 11.25 percent on his second - were significantly above the going rate. Because he financed the full purchase price, he had no cushion.

He's filing for bankruptcy, angry with the mortgage broker who he thinks took advantage of him and frustrated with himself for signing the contract. He had been loath to lose a $3,000 deposit, but after forking over about $20,000 in settlement costs, he was able to make only one mortgage payment. "It was bad from the beginning," said DePaula, 31, who plans to sue the brokerage. "The taxes were coming due, my mortgage was already behind - it just got overwhelming."

Vivian Ogburn hasn't lost her home, but she says it's just a matter of time. She figures her best hope is to persuade her lender to let her sell for less than the roughly $630,000 she owes on the waterfront property in Middle River, and forgive the rest. The highest offer came in at $485,000. If the lender agrees, she'll still have to pay taxes on the difference.

One disaster after another forced her to this point. Her husband bought at the height of the housing boom over her objections; she wanted to rent because their flooring company, though successful, was young. Persuaded by their mortgage broker to refinance from two loans into one, they increased the level of their mortgage debt last year. Then, Ogburn said, their business unexpectedly failed, the housing market worsened sharply and her husband left her.

Ogburn, 41, a mother of one with a second on the way, still doesn't understand how her husband managed to qualify for such an expensive home. "The whole thing made no sense," she said.

She has been trying hard to make good on her obligations. But those who put no money down and are struggling to pay for homes worth less than the loan are more likely to just walk, lenders say.

The problem isn't limited to subprime loans. Baltimore-based First Mariner Bancorp, which doesn't offer subprime products, said bad loans contributed to its nearly $4 million loss in the last three months of 2006. Brett Carter, president of First Mariner Mortgage, whose loans are primarily on Mid-Atlantic homes, sees a mix of homeowners in trouble and investors who speculated badly. "They can't sell their property and they can't refinance their property and they can't get a tenant, and you're seeing them throw up their hands and say, 'You know, I'm out,'" Carter said.

Other investors, sensing an opportunity, are flocking to foreclosure auctions held daily at courthouse steps around the state.

Jon Levinson, an Alex Cooper Auctioneers vice president, is seeing a lot of $200,000 to $400,000 homes on the selling block. A lot of homes, period.

In an average week last year, the company was scheduled to auction about 150 foreclosure homes in the Baltimore-Washington area. "Now it's in excess of 200," Levinson said. "Even as much as 250."

jamie.smith.hopkins@baltsun.com

Copyright © 2021, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
72°